Having a low credit score can make borrowing money challenging, but it’s not impossible. Whether you need funds for an emergency, debt consolidation, or a major purchase, there are strategies to secure a loan even with bad credit. This guide explores secured vs. unsecured loans for low credit scores and provides actionable steps to improve your approval chances.
Understanding
Bad Credit Loans
A bad
credit score (typically below 580 on the FICO scale) signals to
lenders that you may be a high-risk borrower. However, some lenders specialize
in bad credit loans, offering options with higher interest rates or stricter
terms.
Secured
vs. Unsecured Loans for Bad Credit
When
applying for a loan with poor credit, you’ll typically encounter two main
types:
1.
Secured Loans
Secured
loans require collateral, such as a car, home, or savings account,
which the lender can seize if you default.
Pros:
✔ Easier approval for bad credit
✔ Lower interest rates than unsecured loans
✔ Higher borrowing limits
Cons:
❌ Risk of losing collateral if you miss payments
❌ Limited options if you lack valuable assets
Examples
of Secured Loans:
- Auto title loans
- Home equity loans
- Secured personal loans (backed
by a savings account)
2.
Unsecured Loans
Unsecured
loans don’t require collateral but rely on your creditworthiness.
Pros:
✔ No risk to personal assets
✔ Faster approval (no collateral evaluation)
Cons:
❌ Higher interest rates
❌ Stricter eligibility requirements
❌ Lower loan amounts
Examples
of Unsecured Loans:
- Payday loans (very high
interest)
- Bad credit personal loans (from
online lenders)
- Credit-builder loans
Approved
Strategies to Get a Loan with Bad Credit
1. Check
& Improve Your Credit Score
- Get a free credit report (AnnualCreditReport.com).
- Dispute errors that may be lowering your
score.
- Pay down existing debt to lower credit
utilization.
- Become an authorized user on someone else’s credit
card.
2.
Consider a Co-Signer
A co-signer
with good credit can boost approval odds and help you secure
lower interest rates. However, they’re equally responsible for repayment.
3. Apply
for a Secured Loan
If you have
collateral (e.g., a car or savings account), a secured loan may offer better
terms than an unsecured one.
4.
Explore Credit Unions
Credit
unions often have more flexible lending criteria and lower
rates than traditional banks. Some offer payday alternative loans
(PALs) with reasonable terms.
5. Try
Peer-to-Peer (P2P) Lending
Platforms
like LendingClub or Prosper connect borrowers
with individual investors, sometimes offering better rates for bad credit.
6. Avoid
Predatory Lenders
- Payday loans and car title
loans often have APRs over 300%—use only as a last
resort.
- Look for lenders registered in
your state and check BBB reviews.
7. Opt
for a Credit-Builder Loan
Some banks
and credit unions offer credit-builder loans, where you make
payments before receiving funds, helping improve your credit.
8. Show
Proof of Stable Income
Lenders may
approve you despite bad credit if you have a steady job or
reliable income source.
9. Borrow
Only What You Need
Smaller
loans are easier to approve and repay, reducing default risk.
10.
Compare Multiple Lenders
Use loan
comparison tools to find the best rates for your credit profile.
Best
Lenders for Bad Credit Loans
Lender |
Loan
Type |
Min.
Credit Score |
APR
Range |
Upstart |
Unsecured |
300+ |
6.4% -
35.99% |
OneMain
Financial |
Secured/Unsecured |
Not
disclosed |
18% -
35.99% |
Avant |
Unsecured |
580+ |
9.95% -
35.99% |
LendingPoint |
Unsecured |
580+ |
7.99% -
35.99% |
OppLoans |
Unsecured |
No minimum
(high APR) |
59% - 199% |
Final
Thoughts
Getting a
loan with bad credit is possible, but it requires research, responsible
borrowing, and sometimes collateral. Secured loans offer
better approval odds and lower rates, while unsecured loans are
riskier but don’t require assets.